IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Friday night trading in the US was, as expected, fairly weak to close the week. Having reached an all-time-high and closing high, finishing at 1593 on Thursday meant profit taking opportunities were glaring with investors cashing in. This will most likely see Asian markets starting on the back foot after having a positive week for the first time in a month today, but this is a side issue to the major talking point of the last week.

The more interesting development (as it will affect the Australian market over the coming weeks) is the rise of the commodity bears.

Case-in-point is gold. The biggest gold bulls of the last nine years have been hedge funds, and they have being adding to their bullish bets over the last week as gold hit $1550 an ounce, increasing their bulls positions by 19%.

However, they are now fighting a losing battle with the gold bears. It is no secret that Goldman Sachs has put an out-an-out sell on the metal, which caused a sell-off early last week. It has since came under even more pressure from technical selling, as it broke through the $1522 support level to plummet to $1483 as other issues, such as Cyprus, heaped even more pressure on the precious metal.

This drop officially puts gold in a bear market. The bears roared even harder towards the end of last week as soft data led to analysts making the call that a period of deflation is on the cards, as the US stimulus package floods the market, but is not followed by any discernible changes to the economy. This outlook is even direr for gold.

Agriculture is in the same boat. Wheat, corn and soybeans have all expected major falls over the previous two weeks as demand has dropped. There was a soft pick-up over the weekend, but most expect this to be short lived as the S&P GSCI index of 24 raw materials dropped to nine-month lows. Citigroup has labelled this the ‘death bell’ for the commodities super-cycle. All of which does not bode well of an index such as the ASX, that has a 22% weighing to these leads. The material plays look set for another rough ride over the coming weeks. NCM tested $20 on Wednesday, before falling back; the shorters will be out in force today.

The other concern for regional markets today is that US and Europe look like giving Japan a slight touch-up ahead of the first G-20 meeting since the BoJ expansion plans. Currency wars are back on the agenda as US and Europe ‘remind Japan of its pledge not to drive down its currency’. USD/JPY has moved off its high of ¥99.95 to drop 0.3% over the weekend, to as low as ¥97.63 before settling at ¥98.26. This will see the Nikkei moving further south today. The inverse correlation between the yen/Nikkei is almost ironclad, and will add to the downward pressure regionally.

This call by the US and Europe is an interesting one considering their current monetary policies. Japan will push back here; the BoJ’s stance is really the Japanese saying ‘enough is enough’ when it comes to deflation. Governor Kuroda is on the newswires twice today, so watch this space.

Ahead of the open, we are calling the ASX 200 down 19 points to 4995 (-0.37%). I have outlined the major areas of concern today, gold stocks looks set for a hiding. Medusa Mining looks like taking a double hit after downgrading its production guidance by 12% this morning; expect double digit south prints here. The banks should prop up the market somewhat as we head into reporting season for ANZ, NAB and WBC. Most investors are gearing up for what will be a very interesting period over the next three weeks.

Finally, China data will have a major bearing on Australian trade today with the release of its GDP numbers. It did snap a seven-quarter losing streak last time around; expectations are that it will make it two-from-two at 8%, and might stop some of the rot today.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0505 -0.0045 -0.43%
ASX (cash) 4995 -19 -0.37%
US DOW (cash) 14854 10 0.07%
US S&P (cash) 1586.3 1.3 0.08%
UK FTSE (cash) 6404 -3 -0.05%
German DAX (cash) 7778 -49 -0.62%
Japan 225 (cash) 13351 -134 -0.99%
Rio Tinto Plc (London) 30.80 -0.61 -1.93%
BHP Billiton Plc (London) 18.92 -0.41 -2.13%
BHP Billiton Ltd. ADR (US) (AUD) 32.88
US Light Crude Oil (May) 90.74 -2.50 -2.68%
Gold (spot) 1484.15 -79.9 -5.11%
Aluminium (London) 1854 -44 -2.32%
Copper (London) 7406 -204 -2.68%
Nickel (London) 15850 -420 -2.58%
Zinc (London) 1875 -39 -2.04%
Iron Ore 141.00 0.4 0.28%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

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